Don't Count Out Gold Just Yet

Gold sentiment continues to worsen. SocGen just published a 27-page report entitled, “THE END OF THE GOLD ERA”, which reminds me a bit of the famous 1979 “Death of Equities” Businessweek cover. As is the case with most sentiment measures, it's best to go against the consensus and be contrarian, meaning all this extremely pessimistic sentiment towards gold is actually bullish.

I’ve been saying gold needs to hold at the 1550-1560 level otherwise my tune will change. Gold is now at $1566 but got as low as $1540 yesterday. It's obviously not lost on me that technically gold is in a precarious state, however a dip below 1550 is not enough to cause me to react in knee-jerk fashion. A breakdown below a key support level needs to occur in a significant way, as opposed to a brief blip.

But looking at gold's longer-term picture, I believe it's still too early to throw in the towel. I show a monthly chart for gold below. 

Source: Stockcharts.com

A sell signal is generated when 1) gold falls below its 36-month moving average and 2) when the RSI falls below 50.  Vice versa for buy signals. In the last 20 years, there’s been three signals and they've generally kept you on the right side of gold. 

A sell signal was almost triggered in 2008, and we're currently flirting with the possibility of a sell signal. However, best to wait for it to happen --  like in 2008, it may not.